Category Archives: Economics

3 ways that display advertising must change — or else

(Originally published in iMediaConnection, October 2011) by Eric Picard

Despite all the excitement in our industry about programmatic buying and selling of inventory (via ad exchanges, DSPs, SSPs, and a variety of direct-to-publisher vehicles like private exchanges and private marketplaces), the vast majority of dollars today are still spent the “old fashioned” way.

Since display ads began being sold in the mid-1990s, very little has changed in the way that the vast majority of ad dollars are spent. Most ad dollars are spent via a guaranteed media buy — either a sponsorship (the brand is placed on a specific location for all impressions served to it) or a volume guarantee (ad space of a specific volume is reserved against either a specific location on a page, or a specific group of pages, but will rotate out dynamically on a per-page view).

Sponsorships are great for buyers and sellers because they’re easy to manage. The buyer gets a fixed location, takes over every impression delivered to that ad location, and the seller doesn’t need to worry much about over- or under-delivery. (Sometimes they will sign up for a volume guarantee here, but many times they don’t.) And generally while sponsorships tend to yield low CPMs for the publisher, the ad buys are frequently for solid brands and the size of a sponsorship tends to be large on a dollar figure, if not large on CPM basis (e.g., it may be a multi-million dollar buy, but the CPM is probably low).

The oft-misunderstood publisher benefit of sponsorships, despite the low CPM, is that the cost of sales tends to be much lower. A sponsorship buy can be executed quickly and doesn’t require a lot of labor after the fact. I’ll discuss more about the issue of cost of sales when I touch on efficiency. But don’t underestimate the importance here.

Guaranteed volume-based buys are in many ways the cause of vast problems in our industry, despite being generally more lucrative and higher yielding on a CPM basis than sponsorships. First, they tend to be very sales and operations intensive, which means the cost of sales is often extremely high (frequently above 30-40 percent, and sometimes significantly higher for some of the most complex campaigns). There are several reasons why guaranteed volume-based buys are complex and costly.

First is that when inventory is sold in advance, there is some degree of prediction involved to determine how much inventory of any specific type or location will exist in the future. This inventory prediction problem is still one of the biggest issues we face as an industry. The ability to predict how many users will visit a specific section or page of a site is quite difficult on its own. Given the guaranteed nature of these buys, the prediction methods need to be extremely accurate, and getting accurate predictions is hard, even just based on seasonality and one or two locations. Once additional parameters, like various types of targeting, frequency capping, and various competitive exclusions are applied, the calculations are near impossible to calculate accurately.

This difficulty with predicting specific inventory in advance is the root of the second problem — optimizing buys on the publisher side during the life of the campaign. This rears its head in general, but much more so when the buy is targeted. Most buyers have no idea of the complexity of delivering these buys and how much work happens behind the scenes at most publishers to pull it off. Frequently there are daily (sometimes multiple daily) optimizations done behind the scenes to make sure a targeted campaign delivers against its goals. This can involve making changes to prioritization in the ad delivery systems, spreading the buy to larger pools of inventory, and bumping lower-paying campaigns out of the same inventory pool (at least temporarily) in order to ensure delivery.

Most publishers are not aware of the vast amount of labor done by ad agencies on their buys across publishers in order to ensure that advertiser goals are met. This can range from just ensuring that volumes that were agreed to are met, to ensuring that click or conversion rates driven by the buy are meeting a performance goal (for the direct-response advertisers). In either case, the amount of work done by agencies to optimize these buys, frequently across dozens of publishers, is huge.

Buying and selling inventory must get more efficient
This brings us to our first big problem that must be solved. Media buying and selling needs to get more efficient. If you compare efficiency (i.e., costs) of buying and selling traditional media versus online media, there’s a very clear difference. I’ve been told by numerous sources that the efficiency is between 10-15 times less efficient for big spenders for buying online versus offline media. And certainly there is a similar lack of efficiency for selling of online media.

One way that both buying and selling can become more efficient is through basic automation. Much of the back and forth of a media buy between buyer and seller is manual. There are not simple standard efficient means of automating the media buying process. There are numerous tools on the market that try to do this in the guaranteed space, but adoption has remained small so far. Between TRAFFIQ (full disclosure: I run product and engineering at TRAFFIQ), Centro, FatTail, isocket, Donovan Data Systems, DoubleClick, and others, there is plenty of choice to automate buying and selling of guaranteed between systems focused on the buy or the sell side of the problem.

And despite the promise of programmatic buying and selling removing much of the inefficiency from the space, most publishers are so worried about putting premium inventory into exchanges that we are still relegating exchanges to massive repositories of remnant inventory. Publishers must start using the private exchange and marketplace functionality that’s available to represent premium inventory.

This doesn’t mean that salespeople go away, and it doesn’t mean that publishers lose control of their inventory. It just means that much of the inefficient order-taking and campaign optimization that is done on both sides of the media buy can be removed from the system and automated. Sales become a more evangelical process, less work goes on behind the scenes, and salespeople stop spending so much time “order-taking.” Today publishers can set dynamic floor prices against exchange cleared inventory, buyers can automate their bids, and at the end of the day, the whole marketplace can get more efficient.

Publishers often say they don’t want this to happen because they fear a drop in the CPM of their guaranteed buys. The reality is that the cost of sales is so extreme on guaranteed media buys — especially targeted or frequency-capped ones — that publishers could easily skim 20-30 percent off their floor price if the cost of sales was significantly reduced.

One major reason that we’re having such trouble in the display industry is the predominance of performance or DR spend in our space. This overemphasis on DR for display has huge consequences to our space — from depressed CPMs to a focus on metrics and methodologies that require a lot of work. This leads us to our second major change that must take place.

Online display must become a brand friendly medium
Let’s face it. As a brand advertiser, you’re much better off putting your message on television or in magazines than on almost any digital vehicle. Our ads are too small to give the brand a proper emotionally reactive vehicle to reach audiences. Even the “brand friendly” 300×250 ad unit is tiny on today’s modern high-resolution screens. Luckily the IAB is responding to this problem with action, and there are many new larger standard ad sizes being promoted across the industry. But publishers have got to adopt them, and buyers have got to demand them as part of their RFPs. We should be moving much faster here — especially when you consider how many new tablet form-factor devices are moving into the hands of consumers.

But beyond the simple size of the ad, the design of most web pages leaves a lot to be desired from the perspective of a brand advertiser. There are too many ad units, not enough “white space,” too much noise on the page, and not enough back-and-forth value to the site’s own visitors or to the brands from the “advertising experience,” meaning the way ads are integrated with content. In a perfect world, the audience and the brand should be at the very least “neutral” in tension, and ideally the ads should be adding value to the viewing experience.

But there hasn’t been a huge outcry from the brands to fix this because they don’t see online as a medium that caters to them or is brand friendly. The flat CPM pricing is fine, but the lack of available GRP or TRP measurement in order to provide some cross-media evaluative metrics is a major roadblock.

Another reason that the biggest brands haven’t come online, beyond both the efficiency and brand friendliness issues, is that the ad units are shared with numerous less brand-centric advertisers, many of which run creatives that no brand advertiser would ever want running alongside their own creatives. This massive over focus we have on direct response or performance advertisers has somewhat tainted online display, and the willingness of publishers to liquidate every single available impression at fire-sale prices has led to overall much lower CPMs than media that have focused on brands as their primary customers. This issue leads to our third and final major change that must happen in online display.

Online display must increase overall CPMs of inventory
If we can transform display into a high-quality space for brand advertising, we should be able to demand higher CPMs. This sounds nice and wonderful to most publishers, but many of the people reading this article will somewhat cynically push back at this point and talk about the “reality” we face in online display today.

So let me dispel a few myths by explaining the economics of our space in terms many of you have probably never heard.

Every emerging media that I have researched or lived through has focused initially on DR advertisers as their primary target in the very beginning. There is an economic theory that drives this: budget elasticity. The idea is that a DR advertiser is theoretically managing spend based on pure ROI. That is, they only buy ads that drive profitable sales of product or services (i.e., the budget is “elastic”). This, in theory, means they will spend as much as they can as long as the media buy creates more revenue than ad spend. And because the media experience is new in an emerging media, and the advertising is novel, response rates to those new ads in new media types tend to start out much higher, and then they will eventually plateau.

The problem with this theory is that it only works out well for publishers catering to DR buyers when the conversion rate on their inventory is high enough to drive high CPMs. The type of inventory that drives high conversion rates is typically extremely well-targeted inventory, typified in our space by paid search advertising, where the users tend to be searching for the very thing that the advertiser is selling. There are some forms of display advertising that also drive high conversion rates. They are frequently driven by retargeting of search queries, very lucrative behavioral segments that show a user’s propensity to buy is higher than average, or similar principles.

Like all other emerging media, when display advertising first started out, the focus was on getting DR advertisers in the door. And like all other emerging media, the response rates on ads were relatively high in the early days. But unlike all emerging media before online display, we wrote software that managed media buys online right at the beginning of this industry. And all of the DR “knobs and dials” were locked down in code, which made it much harder to evolve out of DR into brand advertising. If response rates had grown or remained high, this wouldn’t have mattered. But like most “top of purchase funnel” ad experiences, the response rates are too low to justify high CPMs by the DR advertisers.

When a media type does not drive a very high conversion rate, DR advertisers are only willing to spend a very low CPM. There’s a magic point at which the price of the inventory is low enough that the DR formula for positive ROI starts to make sense even for low performing inventory. This inventory is generally cheaper than 50 cents and frequently cheaper than 5 cents. And there’s a ton of it available in our space. This overemphasis on DR has numerous unintended or unrealized consequences.

Many large publishers sell their guaranteed inventory at well above $3 on average, and many publishers average between $5 and $9 for what is sold by hand. But this typically represents well under half of their inventory, and for many publishers it’s more like 30-40 percent of their total inventory. Once you dip below the conversion threshold of a DR buyer on most ad inventory, you’re driving very hard toward the basement on your prices. And if more than half of your inventory is sold off for less than 20 percent of your total revenue, then something is very wrong with the way we’re managing our space.

Publishers would be much better off stripping half the ads off of their site, redesigning the site to accommodate larger brand-friendly ad units, selling a lot more sponsorships with their human sales force, and selling the remainder of those ads mostly through a very automated sales channel, such as a private exchange, or at the very least automating their sales with one of the available tools.

Even selling10-20 percent more ad inventory through premium channels would significantly increase yield for most publishers than all of the remnant sales that take place today. Simply repurposing the sales and operations teams away from the remnant inventory problem and focusing them on selling premium could solve this.

To conclude, if we can make buying and selling inventory across the online display space more efficient, more brand friendly, and significantly increase our CPMs, then we’re going to have a rapidly growing and expanding space — one that would rival venerable offline media like print and television in size and scale. And that would become the perfect vehicle for those media to travel through as they become “tablet-ized” and “streamed.” But with such a huge overemphasis on DR, massive inefficiencies in buying, and low CPMs, we have a ways to go.

Why the ad industry is ripe for consolidation

(Originally published in iMediaConnection, September 2011) by Eric Picard

The other day I was talking to a good friend of mine who is on the executive team at a startup in the ad technology space. We were talking about strategy — and in the midst of the conversation, I suggested that since the company hadn’t taken any money yet, it should strongly consider selling at its early “life stage” for $10-20 million now. He gasped and told me, “Are you kidding me? I’d put our valuation at between $100-200 million.”

I stopped talking for a minute, and then said, “I’m not sure how you could possibly have the revenue to justify that.” This is, after all, an early stage startup that only has been in business for a year or two, and I’m fairly familiar with the company and its customers; I know it’s not doing more than $2-3 million of annual revenue right now.

And he said, “In (insert niche here) nobody is bought on a multiple of revenue — it’s always based on strategic value.”

To which I replied, “That might be true of funding — of course VCs and increasingly PE firms are betting on the long-term value of disruptive technologies. But for an acquisition, at least for a rational one, nobody is bought without some discussion of ‘comps’ for similar companies and revenue, and some ‘reasonable’ multiple is definitely a factor.”

My friend rattled off several examples of companies that have been acquired (for what I see as irrational amounts of money) lately and some of his beliefs on their revenue pictures — and we picked over the specifics of the acquisitions. And that’s when I started to get worried.

This conversation has been rattling around in my head for days now, and I have to say I’m concerned about the market. I see this space as primed for consolidation. The Luma Partners display ecosystem slide is a perfect example of much that is wrong in our space:

As dollars move between advertisers and publishers, the folks sitting in the middle are trying to find a way to strip off some money as it passes through the ecosystem. The only way they’re going to be able to strip some pennies off of the dollars as they flow through is if they provide some value back to the ecosystem. The problem is both the number of companies in this space and the exuberance of those companies for how they believe they’ll participate. Many are not realistic on what they should be paid.

There’s opportunity in this space; don’t get me wrong. I wouldn’t be invested so heavily in online advertising if I didn’t believe that there is a strong opportunity for me and my company. But let’s all be very clear about what that opportunity really looks like. The greater the provided value, the more money that the company in the middle can take away. So is the value a moderate improvement in efficiency — or a substantial change in value? How significant is the change? At the end of the day, the market will bear only so much being stripped away, so only those companies that have disruptive technologies are going to be able to extract significant amounts of money.

It might be useful to look at what percentage of spend various vendors are able to extract today. Let’s start with agencies, which are often the target of technology companies trying to find a place to disrupt the market through disintermediation. But that’s crap. First of all, the agency lives in thepower position in the ecosystem. And despite the kvetching of the technically minded who don’t “get” what agencies do (nor even the difference between a creative and media agency), agencies provide a lot of value to the advertiser (their customers). Agencies are not easily disintermediated — nobody has been able to disintermediate them so far.

Most startups vastly inflate the amount agencies get paid — typically the number that is thrown out is somewhere between 15 and 20 percent of spend, which would be freakin’ awesome if it were true. But those kinds of percentages went out of style in the ad space along with well-tailored suits, smoking a lot of cigarettes, and drinking whiskey and water like it’s going out of style. Most big agencies no longer negotiate their contracts with the marketing team as an advertiser; they negotiate with procurement offices and negotiate for fixed margins — very low margins, in many cases. They’d be psyched to claim 15 percent of spend. They’d be excited about 10 percent of spend — even 5 percent, in some cases, would be cause for ecstatic celebration.

OK, so agencies are not where the money pools. What about tech startups? The reality is that technology vendors take small percentages of the dollars out of the flow and make it up on margin and volume.

Ad serving is a great example of this. A third-party (buy side) ad server is typically getting between $0.07 and $0.15 CPM for its service. That is really not a huge amount of money. It typically comes in at less than 5 percent of spend — and at volume, and depending on price, it frequently is down below 1 percent.

In traditional media, typical vendors are well below 1 percent of spend as the money travels through their systems. But ad serving is commoditized, you might say (and I’d argue that before too long, most technologies are commoditized). Look at DSPs, which have been the much-laureled darlings of advertising technology for the last three years. There’s very little differentiation here. They’ve all commoditized out to varying degrees, competing only on price or service, or minor feature differences, rather than by disrupting each other. (And for the record, there’s nothing wrong with this — which is sort of my entire point.)

“But the DSPs are the future,” you might say. “They’re the ones who are bringing automation and efficiency to this space; they’re the future of advertising! Damn it!”

Well — yes and no. DSPs are playing in an emerging media — the real-time inventory market. In emerging media, the top-line media spend CPMs are generally higher. (Let’s not have any illusions here — it’s a product of supply and demand in which the amount of available inventory is low and the demand is high.) DSPs are in an emerging space where supply is vast, and demand is small (but growing), and they still are taking a proportionally large chunk of spend (8-20% depending on the contract and volume) because the market is emerging and the average deal size is still quite small.

In emerging spaces, the technology vendors typically take much bigger pieces of the pie. For example, look at ad serving back in 1998 — CPMs were closer to a dollar. Look at rich media vendors, which could easily pull close to $2 out of the ecosystem back in the early days. But the core CPMs of the media in an emerging market are higher. Look at mobile: In 2004, the average mobile CPM was between $60 and $80, and is now below $5 (depending on who you talk to). And when the CPMs are high, and the market is still figuring itself out, vendors can take a big piece of the pie. Even in paid search, which hasn’t seen the bottom drop out of CPMs (for very strong economically provable reasons), the percentage of sustainable media spend by vendors hasn’t been very high. The simple truth is that mature media markets are only willing to allow very small amounts of money to leach away between buyer and seller for “table stakes” technologies.

Does this mean that the online advertising space is not as “hot” as investors have believed for the last decade? I think this space is incredibly hot — and that there’s a huge amount of value to be created and we’re only at the beginning of it. But let’s be clear. Let’s look each other in the eye and not pretend that the dynamics of an emerging market are sustainable over the long term.

There are only two tricks to play out here: You either need to be the Donovan Data Systems of your market (i.e., you are indispensible, are taking a reasonable percentage of spend as the dollars flow through you, and you’re the stand-out leader in your space). Or you need to be the company that redefines the market completely (i.e., you will use technology to fundamentally change the way the market operates). And if technology is at the center of that disruption and technology is the driver of that fundamental change, then suddenly the rules are different.

What bothers me about the space we’re in right now is not only that it’s getting really crowded, but also that most of the parties playing in the middle are not adding the value that a full corporate entity needs to be adding in order to both create and extract the value needed. Most of these startups are really more of a feature rather than a whole business. But if they’re just a feature, what do they plug into?

The problem is that consolidation is not easy. It actually sucks majorly — for everyone involved. I speak from experience; I was on the deal teams for of a bunch of companies we acquired when I was at Microsoft. I was involved in the projects to consolidate those acquisitions, and I’m friends with a bunch of folks who were in similar roles at Google, AOL, Amazon, Yahoo, etc. And it’s just never easy. The buyer has this nasty problem of a new and generally incompatible technology, plus a completely different culture — both of which are super hard to converge successfully.

And what about when you’re getting bought? It only works out well for those who are fairly mercenary — the ones who ran after the idea because they wanted to exit well, and who were determined to exit well, and were plenty happy to exit as early as they could. But what about for those who are in love with their own startups, who see them as children? Great entrepreneurs I’ve met look upon an acquisition as an opportunity to get their struggling products the visibility and distribution might that they deserve. And it’s called an exit for a reason. When your company is acquired, it ceases to exist. It’s no longer your company; it belongs to someone else, who is very likely going to screw it up and kill it.

The trick for having a successful startup in this space and a successful exit (not only for the cash value, but to have your beloved business count for something going forward) is for folks to be realistic about both the value they bring to the table and the way they can be leveraged. And let’s not forget that in order to really be valuable when you are acquired, your technology has to somehow rationally live in the context of the acquiring party’s landscape — both technically and culturally.

Exit earlier rather than later if you can — while you still own a good chunk of the company. As a founder, would you rather have 30 percent of $20 million, or 5 percent of $80 million? I’ll give you some advice — earlier is better. Exit before you have to scale the thing up — before you have to invest in customer support or in operations, before hosting everything in the cloud stops scaling for you cost effectively and you have to invest seriously in capital expenses and need to raise a lot more money.

And please — build your technology in as abstracted and “ingestible” a way as possible. Please — I’m begging you!

But I digress. The reality is that there are a lot of companies that are stuck. They’ve taken a lot of money, but they aren’t the leader of their space or disrupting their space significantly. And most of them have become targets for new companies coming in and running after them — and either exactly copying them (further commoditizing them) or disrupting them.

It’s these second-generation companies that are the ones to watch. They’re typically bootstrapped and generally doing more interesting things than their established competitors. And they’re the ones who are most ripe for consolidation because they can afford to exit for much less money since they haven’t taken as much from investors.

The only question is this: What happens when they get acquired? And what happens to the middle of the market — those that have raised $15-40 million and that have stalled on growth and suddenly face a plethora of competitors? They had better find a way to get profitable real fast.

An online marketer’s guide to the full product life cycle

(Originally published in iMediaConnection, July 2011) by Eric Picard

Let me state the obvious — because clearly it’s not so obvious, especially to those of us working in online marketing. Most products and services are designed with a target market in mind. This market could be as broad as those of us with teeth, who hope to keep them healthy into old age, or as specific as 38-year-old women who want white teeth for their 20th high school reunions. The trend for the last few decades has been toward designing products for narrower and narrower markets — and using specific differentiation between target markets to drive sales and profits. And of course, with better targeting available all the time, the ability to hone the product to a specific subset of customers will become ever more possible.

The best companies use a combination of personas and scenarios to ensure that they are nailing the product requirements early in the design phase. These scenarios (sometimes also called use cases) are pushed into the hands of eagerly waiting marketers, who in turn get the product put into a strong series of marketing messages (and even the actual creative) that tie to specific target customers (the personas). The personas for which the product and marketing teams have developed their products ideally make up the basis of a media plan.

I’m frequently shocked at how few of the basics are used in the development of media plans for online marketing. And I’m frequently shocked at how products are released with marketing messages and targeting that don’t match. In many cases, the creative for online is either just completely different than the offline creative, or it has been so incredibly simplified for online that none of the powerful messaging from other media actually make it through.

So I thought I’d write a short primer for online marketers so that they understand the whole product life cycle and how they should be plugging into it. In advance, I’ll warn you that there are numerous methodologies here, and almost every company does this just a bit differently. So I’ll just push forward a simplified version of a typical process, and you should be able to apply the concepts as you stumble across them. And of course, if any companies you’re working with don’t use some variant of what I’m describing, you should be a bit concerned.

Product planning
In a perfect world — where there are plenty of resources, time, and money to properly plan a product — the model goes something like this:

Three to six months of market research are commissioned, funded, and executed to ensure understanding of the market demand for the product in question. This process begins with a series of ideas and invention, combined (at least for existing products and services) with feedback from existing customers, and is turned into a strategic plan for what product will be built.

In this process, the target personas for the customers to whom the product is designed to appeal are created. Ideally some market sizing is done to determine what the financial opportunity for all companies running after similar products and services might be — and what the specific opportunity for the product in question might be. Simultaneously, work typically is done to determine what scenarios will be supported in order to bring clarity to all members of the product team, from research to development to marketing to sales.

Example persona: Wealthy, highly educated, sophisticated urban empty nesters — Brad (64) and Sandra (62)

Example product: Online banking services for wealthy clients with multiple homes

Example scenario: Brad and Sandra live in New York City during the spring and fall, in Martha’s Vineyard during the summer, and in Killington, Vt., during the winter. They need a way to ensure that all their bills are paid on-time for all their properties, all year round, even when they are rarely there. This service creates a very clear portfolio of all their properties, and all their expenses, such that bills can be easily assigned to a property, tracked, and managed in a clear automated way.

Product planning is really the process of defining the opportunity at a broad level, and ultimately answers the question of why a product or service should be rolled out. The more discipline, time, and effort put into effective product planning, the easier the job of all the subsequent teams engaged in the process.

Product management
Once the product has been planned and approved, it’s time to build it. In this case, we’re talking about a software development project that will be rolled out via a website and a variety of apps across PC, phone, and tablets. The process entails defining the specific features, creating the project plan, working with the product development teams to ensure the correct product decisions are made, coordinating internal communications, and development of the appropriate key performance indicators (KPIs) to measure the product’s success in the market.

In most companies, the product management team is really the “product owner” and makes all the decisions and prioritizations of features of that product. Essentially, the team defines what will be built, leaving the how to product development. In some companies the what is shared between the product management and product development teams.

The key to strong product management is always being customer driven — which means creating very powerful and accurate personas and scenarios that always drive the “true north” of what is being built. This process should become the basis of what is handed off to the sales and marketing teams in order to drive the go-to-market strategy and sales positioning.

Product marketing
Product marketing is typically one of the most important teams, leading one of the most important efforts — but frequently this discipline is under-funded and under-resourced. In an appropriately resourced product marketing effort, key partners and customers are engaged in deep ongoing conversations. Ideally, the personas and scenarios that were created during the product planning effort received vast input from the product marketing teams. The go-to-market strategy for how that product will be launched, including all the marketing and training materials used by sales and customer services within the company, is managed by this team, which also feeds the key marketing positioning to the marketing communications teams.

If the product marketing team does its job correctly, the corporate marketing and sales efforts will be successful. Product marketing ultimately owns the decisions related to where and when the product will be rolled out (with huge dependencies on all the other teams).

Marketing communications
Given the intended audience reading this article, I won’t spend a lot of time here — as this is either you or your direct customer. However, a few key points are worth spending time on:

If the correct personas were created, the media strategy and even the core media plan should come together like a breeze. If the correct scenarios were chosen and executed against correctly by product management and product development, then the creative of the advertising should be quite easy to conceive and execute. In a perfect world, there is a direct feed from inception to creation to getting that product or service in front of prospective customers — and converting them to active customers.

There are, of course, many other teams involved any business, and all play critical roles at varying moments of the product lifecycle. Hopefully this rather nuts-and-bolts summary of the overall process will help those of you who have grown up attached to this mechanism either internally or externally, but who haven’t had full exposure to the processes and roles.

3 steps to salvaging the online display industry

(Originally published in iMediaConnection, February 2011) by Eric Picard

Every mature media has one thing in common, and that is scale. Whether we discuss television, radio, newspapers, magazines, or out-of-home, they all have locked down their basic planning, buying, and selling processes in ways that enable a new employee in the space to learn the basics quickly, and everyone in those spaces has agreed on currency, methodology, and KPIs. Any two media planners in television can understand each other’s approach quickly, and can explain their goals to a sales person quickly, and can execute a media buy quickly. All with common knowledge within their industry — that is broadly available. This leads to scale — the ability of a marketer to reach large audiences in these media types at reasonably low costs per thousand impressions, and without a huge amount of work or cost to execute.

I’ve written before about the problems facing the online display industry, and how the early decisions made about ad serving technology are some of the drivers of the biggest problems we face. Essentially my belief is that because we took requirements from an emerging media — which are radically different from the requirements of a mature media — and locked them down at the heart of the inventory management systems behind the industry, we are screwed.

Emerging media have some common characteristics:

  • Small amounts of available inventory, with relatively high demand, thus driving high prices
  • Small overall budgets because they are coming from experimental media budgets, which are highly scrutinized and optimized during the life of the campaign
  • Technical people are usually involved (i.e., experts with arcane knowledge of how to tweak the emerging media for maximum value extraction, across all phases of a deal, including sales, service, production, operations, and analysis)

Every emerging media type that I’ve touched, studied, and participated in over the last 15 years have all had these characteristics. From online display itself, to mobile, to in-game, to paid search, to rich media, to real-time bidding, I’ve seen this happen over and over. So why do I say we’re screwed in online display? Well, mostly for effect — to get your attention and see if we can dig our way out of the problem.

We built all of the original ad serving platforms, created all the processes for buying and selling inventory, set in place the KPIs, and invented ways of planning and measuring the effectiveness of the campaigns when the amount of available inventory was low, average deal size was quite small, and differentiation from other media was the driver of all the decisions. Not a bad thing in itself, but a horrible thing when we locked all those requirements down in software right off the bat. Because now it is nigh impossible to change the way those systems and processes function. And we really need to if we’re going to scale the industry.

I bring this up now because we’re going through the biggest revolution we’ve seen so far. Real-time buying and selling could solve all our problems. But the players in this space are falling into the same trap that all emerging media have fallen into, and if we’re not careful, we’ll have the same problems later that “standard” online display has today.

    1. We need to reduce the amount of arcane knowledge needed to successfully execute on a real-time media buy. The market feels a lot like paid search in the early part of this industry, where only a small cadre of experts could really pull off anything interesting. Those people are all the ones leading paid search practices in the industry today. Good for them, bad for the space.
    2. We need to optimize for efficiency over effectiveness. By this I mean that in an emerging media that is trying to prove itself, much of the effort is applied to a small frontier of effectiveness gains that will show numeric advantage over the competition. “We achieved 30 percent better results than competitors” sounds great until it is understood that the actual value created was miniscule. The big opportunity for the real-time space is scale, which is why I like the term “scale display” for this emerging space much better than anything else. Efficient (and effective) buying and selling is what the industry needs to solve. Not squeezing an extra 3 percent of yield or ROI — with 30 percent more effort. That’s an emerging media type approach. We need to see “scale display” as the way we help online display move beyond an emerging media and become a mature media.
    3. We need to understand the metrics of traditional media and how they play with the metrics of online. What can we change? What can we give up? How can we make it much simpler to spend much larger amounts of money on our media?

 

Rich media advertising is a great emerging media type to look at and understand when we talk about scale. Back in the early days, every company had its own proprietary ad formats; some companies were the “expanding ad guys” and others were the “interstitial guys,” and others were the “video ad guys,” and others were the “floating ad guys.” Each company had their own ways of buying and selling the media. Each had their own way of measuring the effectiveness of the media. It was a complete disaster.

It wasn’t until PointRoll figured out how to sell the media at scale, and all the other providers copied its model, that rich media became a mainstream media type within online display. All the providers began offering all the formats and functionality that their competitors offered. The big issue is that they made it easy to buy efficiently, and quickly the percentage of media sold as rich media grew.

Scale display needs to be easy to buy and efficient to manage. We need to make sure that the complexity of an emerging media doesn’t block the success of the entire market. Because I believe that scale display is the way that online display becomes a mainstream media.

Why killer content is not enough

(Originally published in iMediaConnection, November 2010) by Eric Picard

In the world of media, content is king. Television networks with the content most people want to watch beat those with smaller audiences. Magazines with the biggest distribution beat those with smaller distribution. And in all of the traditional media, the funding and creation of this high-value content is fundamentally at the basis of their businesses; those who can create it and distribute it to the biggest audience win.

Online media has long been seen as a continuation of traditional media. Yahoo at one point went so far as to hire media legend Terry Semel as its CEO so it could try to replicate the success of traditional media in the online space. This, of course, failed miserably. Similar efforts among the biggest online media companies — those that have focused on building “killer content” in order to attract massive audiences and monetize them — have not done as well as they might have.

Online media is successful when the way the media is generated takes advantage of the power of software. Search engines generate incredibly powerful media because they algorithmically generate content that people are looking for. It doesn’t hurt that they happen to connect advertisers and potential customers at a moment in time that is frequently far down the purchase funnel — a spot that happens to be incredibly rare, has high competition, and therefore drives incredibly high yield. Facebook doesn’t have a human editorial staff writing content; it organizes content written by humans in ways that make that content relevant and interesting to people. And it happens to do so in such a way that it collects incredibly valuable data about the people that both created the content and are consuming it — and can sell the resulting ad inventory for very high yields.

Media companies have missed out on this type of success because they aren’t technology companies. They don’t understand technology, nor do they understand the people who successfully build the most powerful and disruptive technologies. They mainly fail in this area because they believe that programmers and technologists are IT people. They believe that business people, editors, and content creators simply need to tell the techies what to build, and that they will end up with a valuable outcome (which somewhere in there is about creating great content that attracts a large audience that can be sold to advertisers for lots of money.)

Amazing technologists are not “IT guys.” They are brilliant computer scientists who are creative, disruptive, and inventive. They tend to be way smarter than almost anyone you ever meet in an editorial or sales discussion. This isn’t said to diminish the value or intellect of editors or sales people. Rather, these software wizards are simply among the most brilliant people alive. Rather than applying their creativity and intellects to develop smart bombs, encryption software, or a cure for cancer, they have applied advanced mathematics and programming techniques to build better media models.

Sometimes they get it wrong. But every once in a while, they get it very, very right. And when they do, the results are astonishing. They create more revenue as individual companies than some entire industries — or countries, for that matter.

And again — I say all this in no way to diminish the value of human-created content. But simply writing good editorial will only get you so far in the online industry. You might build a great blog or even an associated blog (TechCrunch). And you might be able to attract humans with incredibly well-written or produced content online (New York Times, Hulu, The Onion, Slate). And some of the places where other people’s content is curated well (MSN’s WonderWall) work pretty well.

But the reality of value creation online is where you can apply the power of software to do something unexpected and valuable — in completely new ways. The portals all have the opportunity to do this, but they’ve tended to take an approach to creating media that doesn’t use the power of software to increase its value exponentially. Instead, for the most part, they take a tabloid-like approach, assembling hot topics for their homepages such as, “Details of Tiger’s new estate,” or “How to make a small room look big,” or “What we learned from NFL Week 10.” Yahoo seems to be in rapid decline, and Paul Graham’s essay on why seems pretty telling. I think Microsoft has the right DNA, but not the right focus to pull it off (i.e., online equals search at Microsoft these days). AOL seems to be in rebound, and I’m curious to see what it pulls off in this area — but can it overcome its brand’s association with the early days of dial-up internet?

There are dozens of Googles and Facebooks waiting to be started in the halls of computer science departments across the country. And media will continue to be revolutionized. As will the way that media is monetized.

How to Fix Online Advertising (Part 2)

(Originally published in ClickZ, February 2003) by Eric Picard

In Part 1, I discussed three major problems rooted in online ad technology’s architecture. Now, possible solutions.

Neither is final, but at least we have a starting point for discussion. For those of you who read this for the “sparkling wit” of my commentary, bear with me. This is serious stuff for serious times.

Any solution must be industry-wide. It isn’t something one company working alone can achieve. Many approaches are possible. Below, two possible directions, both of which address the following:

  • Media costs are too low to support the industry. The widely accepted solution is conversion to reach-and-frequency-based media buying and selling. There’s no way to implement this today due to technical barriers.
  • Discrepancies between site-side and third-party ad servers are too high. Both proposals remove serving duplication by the publisher and third-party ad servers. Only one counts impressions.
  • Inventory control systems are too unpredictable. My proposals make this more predictable by streamlining inventory control system function and selling by audience as opposed to general volume.

Let me clarify my definitions of ad servers. I refer to an ad server representing a publisher’s inventory as a “site-side ad server” (SSAS). An ad server delivering an advertiser or agency campaign on its behalf is a “third-party ad server” (3PAS).

Some basic assumptions are made in each proposal (you may disagree):

  • Reach and frequency planning and buying are desired to increase online media’s value.
    • Media planners/buyers need tools covering reach and frequency/gross ratings points.
    • Third-party ad serving is required for multiple-publisher buys.
  • Business models are as important to the architectural changes as working technology.
  • Adopting a new architecture will be a long process but must happen within two years. A plan must be achievable in that timeframe.

Architecture Today

Current architecture separates SSASs and 3PASs. Integration issues include:

  • A 3PAS is managed by the site-side system through a redirect, but site-served ads are not. This is the root of the discrepancies between the systems.
  • Advertisers pay twice to serve ads: to the publisher and the 3PAS company.
  • There’s no mechanism for a 3PAS to request the SSAS change how the media is rotated or handled. This is required to support cross-site frequency capping (a root requirement of reach and frequency).
  • Inventory control is viewed as a linked system to site-side serving. No mechanisms support views into inventory control from the 3PAS or from media planning tools.
  • Little integration exists between all systems used in online advertising, and virtually no automation exists.

Cookies: A Major Barrier

A barrier to any workable system overhaul is HTTP cookie handling. Due to cookies’ use restrictions, a solution enabling identification of unique users between publisher and 3PAS is needed. Not a privacy issue — this is anonymous. To track and value activity of aggregate anonymous users, a mechanism is needed to recognize them when they intersect with a campaign across multiple publishers.

There are two schools of thought resolving this issue. One advocates a universal cookie carefully shared across the industry with companies agreeing to a strict privacy policy. The other calls for some kind ofDNS-alias-creating mechanism. Both are complex, but it’s believed resolution is possible. The solutions below assume the cookie problem is resolved.

Solution 1: Divorce Inventory Control From Ad Serving

Change the relationship between inventory-control and ad-serving systems. The 3PAS’s nature won’t change much. It still serves its own content and the site maintains control over inventory. But hierarchy changes. In essence, the site separates inventory control from content delivery. Any ad serve is treated as a redirect, whether served by the publisher or third party. The impression is tracked at the same point for either server.

Pros:

  • Media pricing will be “purer.” Ad delivery cost is separate from media cost.
  • The advertiser can have content delivered by the SSAS or 3PAS. Paying twice for serving isn’t an issue. This reduces costs.
  • The ad server — site side or third party — remains on one level, eliminating the discrepancy issue.
  • This supports the need for the 3PAS to serve its own content to track rich media activity (particularly Flash).
  • It creates more room for innovation when a third party serves the content. 3PAS can differentiate technically from others with varied capabilities for rich media tracking or other solutions, such as automated optimization.
  • Inventory control is simplified, with a more specific focus on that part of the system without concern for ad serving.

Cons:

  • Third-party serving fees are not reduced. Savings would have to be on the media side, when the publisher didn’t serve the content.
  • Publishers must trust the 3PAS for tracking or open a pretty deep API (which many are reluctant to do) for tracking integration.
  • Advertisers must accept publisher media volume numbers (impression opportunities) as distinct from the impression number given by the ad server. A business model shift, but the fairest way for all parties to be paid an equitable fee. Billing media on page views versus ad serves is an old debate.

Walk-through:

  1. The media planning tool hooks into the publisher’s trafficking and account management system and queries available inventory. It recommends inventory to the agency or advertiser based on criteria.
  2. The media planning tool exports campaign information to the 3PAS.
  3. The 3PAS traffics the campaign to the publisher’s trafficking and account management system (a component of the SSAS).
  4. A user visits the publisher’s site through a browser. A call is made to the publisher’s server, generating an HTML page.
  5. While generating the page, the publisher’s server calls the inventory control system for an ad tag. The system selects the relevant ad tag based on available inventory, confirms the user is not subject to frequency capping, and returns that ad tag to the publisher.
  6. Depending on the architecture, a call to the ad server (SSAS or 3PAS) may occur. Most likely, this step is skipped.
  7. The page is rendered in the user’s browser, which reads the ad tag. A call is made to the ad server (SSAS or 3PAS) for the creative. Methodology (including the redirect of the user) is identical for all ad servers.

Solution 2: Third-Party Servers Stop Serving Ads

Solution two removes ad serving from the 3PAS. It turns the 3PAS into a campaign management, data collection, and cross-publisher media management system. On the surface, publishers are comfortable. Their side looks much as it does now. But most advertisers will find limitations on rich media and reporting problematic.

Pros:

  • Media pricing model stays much as it is. The publisher charges a mixed cost for ad delivery and inventory.
  • Third-party ad-serving fees drop (the majority of the charge today is for ad delivery costs).

Cons:

  • This solution requires more work and trust between publishers and 3PASs.
  • Reporting timeframes are restricted to what the publisher can support. Most use log files, meaning data will not be updated within campaigns for longer periods of time than most 3PAS customers are used to.
  • There is no way to use a 3PAS to “audit” publisher activity. The publisher supplies all impression and click data. With the broader mix of 3PASs on the market, advertisers and agencies can choose one they feel is accurate rather than rely on the accuracy of the publisher’s tracking.
  • Many innovations are reduced in effectiveness or simply not possible, including rich media tracking (which requires a 3PAS to serve the creative). It relies on publisher-side solutions, traditionally less advanced than those offered by 3PASs and rich media companies.

Walk-through:

  1. The media planning tool hooks into the publisher’s trafficking and account management system and queries available inventory. It recommends inventory to the agency or advertiser based on criteria.
  2. The media planning tool exports campaign information to the 3PAS.
  3. The 3PAS traffics the campaign to the publisher’s trafficking and account management system (a component of the SSAS).
  4. A Web user visits the publisher’s site through a browser. A call is made to the publisher’s server, generating an HTML page.
  5. While generating the page, the publisher’s server calls the inventory control system for an ad tag. The system chooses the relevant ad tag based on available inventory, confirms the user isn’t subject to frequency capping, and returns the relevant ad tag to the publisher.
  6. Depending on architecture, a call to the 3PAS may occur. Most likely, this step is skipped.
  7. The page is rendered in the user’s browser, which reads the ad tag. A call is made to the SSAS for the creative.
  8. Impression and click data passed back to the 3PAS.

These solutions were assembled in my “spare” time. I’m not a programmer or an architect. I just happen to have a good brain for how technology works and an understanding of how things are configured today. My goal is to get things moving. To be a catalyst for change. Without someone taking a stab at this, I fear nothing will happen.

How To Fix Online Advertising (Part 1)

(Originally published in ClickZ, December 2002) by Eric Picard

 

A few months ago, I wrote an article about some of the problems with online advertising. As a follow up, today I’m going to discuss some major industry problems, but this time from the perspective of how these problems can be addressed. Those problems are:

  • Media costs are too low.
  • Discrepancies between site-side ad servers and third-party ad servers are too high.
  • Inventory control systems are too unpredictable.

I’m going to be so bold as to offer a solution to the industry — probably not the actual solution, but apotential solution — that is, a viable solution that, at least on paper, would solve these problems plaguing the industry.

Today I’ll lay the groundwork for my proposal, and next month I’ll offer a version of the proposal to the industry. This is a big undertaking… and a bit of a risk. Frankly, I know the solution I come up with is not going to be a final solution, but at least it will be a starting point for discussion.

First, let me clarify my definitions of ad servers (for the millionth time) just to make sure I don’t get yelled at by misunderstanding vendors. I’ll refer to any ad server representing a publisher’s inventory as a “site-side ad server” (SSAS). Any ad server that delivers an advertiser or agency campaign on their behalf I’ll call a “third-party ad server” (3PAS).

How Do We Get Online Media to Be Valued Properly?

As I said last time, media costs are low for a number of reasons. But the general consensus in the industry (not complete consensus, mind you) is costs are low because “traditional” offline media teams cannot plan and buy media online the same way they do offline. There isn’t even a translation mechanism available, as far as I am concerned. Therefore, online media does not get valued properly.

Offline media teams plan their buys using reach- and frequency-based tools. The idea is simple. Reach is defined as the unique audience who saw an ad over the course of four weeks. Frequency is the number of times you reached the members of that audience over four weeks. This translates into a system of gross rating points (GRPs) by which each media vehicle is valued.

A number of companies are developing media planning solutions for the online space based on offline metrics. But even if they succeed, there are still big holes that must be filled.

Offline media is very predictable compared to online media. A radio media plan, for instance, is very accurate when it is bought — the planner knows almost exactly how many GRPs he is going to get. Online media is much less reliable — it fluctuates wildly. This means a stabilization factor must be added to online media buying to compensate for this.

Luckily, there is an answer — frequency caps. The idea is simple. Once an individual member of your target audience has seen your ad the desired number of times (across publishers), turn off your campaign for that user.

Unfortunately, implementation isn’t as simple as the idea, because currently no technology is availablethat the market could adopt to meet this need. It just isn’t available today, nor is it possible for one company alone to build this solution. A broad cross-industry solution is needed to enable this, and it won’t be easy to build.

Media Planning, Buying, Trafficking, and Discrepancy Resolution

The next two problems may seem very unrelated but are actually tied together in the chain of processes within our industry. Let’s look first at the way our industry processes work together.

As you can see in the graphic below, the business model for working online is complex.

Working Online Business ModelFor an ad to actually appear on a Web site:

  1. The media planner must research the available Web sites and assemble a group of sites from which to buy inventory.
  2. A media buyer contacts the sales teams at the short list of publishers she’s interested in with a request for proposals (RFP).
  3. The publisher’s media sales team must review the company’s inventory management system to see if the inventory is available, generate an RFP, and send it to the media buyer.
  4. The media buyer reviews the RFP and, if approved, sends an insertion order (IO) over to the media salesperson.
  5. Next, the IO is handed off to the ad operations team on both ends.
  6. The publisher ad operations team gets the space reserved within inventory control.
  7. The agency (or advertiser, if it’s handled internally) creative team and ad operations team put the campaign into a 3PAS.
  8. The creative team creates the ads; the placements are generated with creatives assigned.
  9. The agency ad operations team traffics the ads through the 3PAS to the publisher.
  10. The publisher ad operations team picks up the ad tags through the 3PAS and places the ad tags into the SSAS.
  11. The campaign runs, and the agency reviews reports from both the 3PAS and the SSAS.

Now, in a perfect world, the campaign would run perfectly. The publisher would run the exact number of impressions specified in the agency’s IO. The impressions and clicks shown by the publisher’s SSAS and those shown by the agency’s 3PAS would match exactly. Unfortunately, in the real world, this just isn’t common.

Most likely, the campaign will be either under- or overdelivered by the SSAS. This happens for many reasons, but primarily because the problem of managing real-time inventory is very difficult. Also, the media buy is negotiated by volume of general delivery rather than by audience delivery, which makes the whole thing less predictable.

In addition, there will always be a discrepancy between the SSAS and the 3PAS. It is inherent in the nature of the technology — the SSAS counts before the 3PAS does, and users sometimes close a browser or click an available link before the ad call is received by the third party. This is just a basic fact. Because the SSAS and the 3PAS count separately, the likelihood of them having matching numbers is almost nonexistent.

These are three big problems. How do we fix them? I’ll tell you my answer next time. But I’ll leave you with one last issue to ponder.

Today, SSAS and 3PASs support the workflow model I’ve shown above. Below is a diagram of the way these systems interact, so ads run on the user’s browser when she views a Web page.

SSAS and 3PAS InteractionWhen a user calls a publisher’s Web site in her browser:

  1. The publisher’s Web server asks the SSAS inventory control system for an ad tag.
  2. The browser calls back to the SSAS for the ad (an impression is recorded) and is then redirected to the 3PAS.
  3. The 3PAS delivers the ad to the browser (and counts an impression).
  4. The user clicks on the ad, is sent to the SSAS (a click is counted) — and then is redirected to the 3PAS.
  5. The 3PAS counts the click, then redirects the user to her final destination.

This process is far too complicated. Even though these redirects typically take less than a second, the fact we’re counting at different times makes discrepancies unavoidable. This model also requires publishers to bear the brunt of coordinating complex delivery schemas, when they’re already dealing with a difficult inventory control issue.

In addition, this system requires publishers to continually upgrade their ad-serving systems to manage increasingly complex rich media implementations. Meanwhile, the 3PAS has a far more demanding reporting role and must serve much of the rich media content anyway, so rich media and post-event (beyond banner) tracking can occur.

My proposal will be a comprehensive plan to solve all three of these problems in one rebuilding of the existing process. I hope this column and the next will spark some ideas with readers — ideas that will move the industry forward. See you next time when I make my proposal.

The Three Biggest Ad Headaches

 

(Originally published in ClickZ, October 2002) by Eric Picard

What does this industry need to fix? I’ll delve into three specific problems here… for starters.

Media Costs Too Low

This might not seem like a problem. For many marketers, it’s a godsend. But it’s a huge snafu. Media costs are depressed, making publishers’ margins too low. The cost of building and maintaining their sites and of serving ads are too close to the amount of money they bring in.

Media sales commissions are hardly lucrative. Really great salespeople won’t stick around in an industry where they can’t make money, because great salespeople are driven by a desire for wealth.

From an operations standpoint, the only way to effectively implement and manage an online advertising campaign across a large number of publishers (from the marketer/agency perspective) is to use a third-party ad server (3PAS) to manage, traffic, and report on campaign activity (see my column on 3PAS). Two years ago, using a 3PAS was a no-brainer for anyone who understood the value proposition.

At that time, media costs averaged around $15-20 CPM. The 3PAS costs were around $1-3 CPM. This was 5 to 10 percent of the media buy. Today, media costs hover around $2 CPM, and 3PAS costs around $0.75 — 20-40 percent of the cost of the buy.

For marketers and agencies that understand the value proposition of a 3PAS, value still significantly outweighs cost. Without a 3PAS, it’s difficult or impossible to calculate return on investment (ROI) and a campaign’s true value. Unfortunately, some advertisers won’t OK the additional cost to agencies managing their online campaigns. The advertiser loses the ability to properly evaluate campaigns, as site-side servers don’t offer post-event tracking (post-impression and post-click analysis). The additional labor involved in trafficking and reporting without a 3PAS cancels out the savings.

Ad-Server Discrepancies Still Too High

A few years ago if you asked what the biggest industry problem was, there’s a good chance the response contained the word “discrepancy.” Nothing’s changed.

Example: Advertiser buys 1 million impressions from publisher. The advertiser traffics the ads using a 3PAS to the publisher. The campaign runs. When it’s over, the publisher’s report shows it served 1 million impressions. The 3PAS shows a lower number. In some cases, a significantly lower number.

The industry average discrepancy rate is 20 to 30 percent, depending on who you ask. A few people tell me they regularly experience 40 percent discrepancies. That’s a big difference. The problem gets nastier. Since the advertiser has an available lower number, it often tries to get the publisher to accept the 3PAS number and lower the bill accordingly. This causes the publisher to request a discrepancy investigation, which costs both the site-side server and the 3PAS time and money.

Why discrepancies? By definition, there should be discrepancies. Really. The publisher serves the ad tag that calls for the ad. At that moment, the publisher counts the impression. The call goes to the 3PAS, which serves the ad and counts the impression at that moment. While the call is being sent the user could close her browser or click away, interrupting the process before the 3PAS counts the impression. By nature, there should be some discrepancy. Worse, some scenarios have 3PAS with ahigher number of impressions than the publisher, counterintuitive as that seems.

One cause is from publishers who filter IP addresses of employees. This is prevalent at large networks that systematically filter out employees at their own IP or domain. As these networks have a large internal population visiting their properties, this alone can cause a significant discrepancy.

Possibly the most common cause of this type of discrepancy between site-side server and 3PAS is caching (a Web page is stored locally for quick future retrieval). If the publisher counts page views rather than ad calls (as IAB counting methodology guidelines require), the publisher may not be aware of a page request if the content is cached. As 3PAS generally “busts cache” effectively, the advertiser may have higher numbers than the publisher. Its number would be more accurate. Since the advertiser got a deal from the publisher in this case, it generally doesn’t complain about this discrepancy. Effectively, the publisher gives the advertiser free impressions.

What’s an acceptable discrepancy? Only you can answer that. Most experts say 10 to 15 percent is OK. If you’re getting a lower discrepancy, you should be happy. When evaluating ad servers, ask the following questions:

  • What’s the average discrepancy between site-side servers and your product? If it’s over 15 percent, ask why.
  • What’s your discrepancy resolution policy? This sets expectations for resolution timelines and what form resolution may take.
  • What’s server response time (the time it takes the server to choose an ad and count the impression while sending the response back to the user)? The lower the response time (sometimes called matching speed), the lower the discrepancy. These should be measured in milliseconds. Due to the nature of Internet traffic, charting can show even a few milliseconds can cause significant changes in discrepancy rates.
  • How do you bust cache? The technology should use at least two methods.
  • Do you follow IAB counting methodology guidelines? This answer should be yes, and make use of the IAB robots and spiders list.

Technical Implications of IE 6 and Third-Party Cookies

Internet Explorer (IE) 6 has a default method for handling third-party cookies. IE 6 only allows cookies to be set by the domain visited, unless a third party has a P3P-compliant compact privacy statement.

This is relatively simple to set up. The third party confirms it’s not collecting personally identifiable user information. On paper, this sounds good. If you’re on Yahoo, for example, only Yahoo can set cookies on your PC unless the cookie is “safe,” meaning it won’t steal any personal information.

But Microsoft did this alone, and it doesn’t reflect the way the Internet works. It’s easy for ad servers. Most 3PAS and site-side servers (to my knowledge) are in compliance. Many publishers are owned by networks of sites that make use of consolidated cookies across all properties. In that case, if any of the servers that set cookies have different domain names, do collect personally identifiable information, or neglected to set up compact privacy statements properly, IE 6 blocks its cookies. This can cause problems: from the inconvenience of not having forms prepopulated or settings remembered to frequency caps not functioning on pop-ups (which really annoys users).

As you surf with IE 6, a red eye in the bottom of your browser’s window provides a privacy report when clicked. It’s illuminating to surf high-profile sites and learn they’re not P3P compliant.

There are plenty of other problems. These three are significant and often misunderstood. Let’s solve them and move forward!

Has Interactive Failed? Not the Way You Think

(Originally published in ClickZ, September 2002) by Eric Picard

Interactive industry pundits are complaining a lot lately about the negative treatment we’re getting from The Wall Street Journal and other traditional media.

Can we blame the media? An appalling lack of understanding about industry issues exists even among the online advertising “experts.” If our experts can’t get a handle on the issues, how can anyone outside be expected to do so? We stink at explaining ourselves to the outside world. We stink at communicating internally.

We argue about a host of issues, all from Balkanized perspectives with little respect for other ways of doing things. Add to this cacophony agendas and approaches within various marketing departments, and confusion starts piling up.

Walk in the Other Person’s Shoes

We need empathy — the ability to see things from another’s perspective. How do you respond to the following statements?

  • Online media should be bought using traditional offline metrics, such as reach and frequency.
  • CPM media buys are absurd. Everyone should buy CPC or cost per acquisition (CPA).

The statements are one dimensional. Each points to valid issues but not to answers.

I see five major constituencies in our industry, although there are probably others. How the two statement above are heard and perceived depends on which group the listener is in:

  • Traditional brand advertisers have advertised offline for years, buying media by gross rating points (GRP), reach and frequency, and other traditional brand media metrics. They understand clearly the science behind branding and prove their value to advertisers by showing them how many people they hit within the target market (sometimes through brand recognition studies).
  • Traditional direct marketers scientifically approach consumers via direct mail and other direct methods. They focus only on successful acquisition and care little about brand effect. They have the research proving what results will be before they lift a finger. This group uses very specific methods and language to describe their work.
  • “Traditional” online advertisers/marketers think of themselves as a hybrid of the first two. They love talking about the branding “side effect” (offensive to brand advertisers) and embrace direct measurement. Their dialect doesn’t quite make sense to brand or direct people outside the online space. Most are decidedly weak in their knowledge of traditional offline marketing concepts. They typically misunderstand the direct marketer’s proven science and have virtually no understanding of branding and associated relevant measures, such as reach and frequency.
  • Online brand advertisers have decided the only way to save online advertising is to build measurement tools that will match those used by their offline counterparts. They have stared to eschew direct-response type information in favor of building consensus for the traditional brand path as applied to online.
  • Online direct advertisers only buy CPA or CPC when they have any say in the matter. They buy CPM when they must, but they make darn sure their actual CPA is very low. Some understand traditional direct offline science pretty well, others think they invented the concept of measuring return on investment (ROI). Those who know the science of offline direct are successful by using the same indices to build models online.

What does this all mean? Just because you’re an online direct advertiser, doesn’t mean you should issue orders that the entire industry move to a response metric to value online advertising. And just because you’re an online brand advertiser, doesn’t mean you should suggest we ignore responses and only focus on methodologies such as GRP. There may be two paths to take — as there are offline.

Rather than snipe at each other because each group has its own agenda, we must unify the messaging from our industry. A divergent but strong positioning of each segment (without diminishing the others) would be an improvement. For example:

  • Online advertising is proving to drive direct response better than any other medium.
  • Online advertising offers the best ROI on branding efforts of any medium.

Issues to be aware of: Online direct has been boosted by lower online media costs. If the online brand crowd is successful, online media will be revitalized — and costs will rise. This will hurt online direct, because they rely on cheap CPC/CPA buys. Unlike offline, online direct and brand share a much higher percentage of the same media space.

Diversionary Tactics

As troubling as the lack of perspective between groups is the lack of clarity in technology companies’ marketing messages. Many use industry issues (real or imagined) as weapons in their own marketing arsenals in ways that further confuse an already confused marketplace.

My comments are not aimed at the companies used as examples (which is why I’m using fake names — although some of you know who’s who), rather at their messaging. I’m not saying marketers at these companies should ignore the value they offer customers. Rather, they shouldn’t inflate minor issues or make untenable claims spun as solutions to major industry problem.

TrueMethods’s marketing inflates minor issues. Its Site Side Ad Serving Solution is promoted as the only privacy-friendly server in the industry, making the case all its competitors share ad-serving data across customers. Virtually nobody in this industry does this. Even those who do cleanse and segregate data to protect customer information. They’d be out of business if they didn’t. This is a minor issue for a few publishers and marketers. It’s not a broad industry problem.

OneStream is a rich media technology company. Its message claims it is building standards for rich media advertising. OneStream doesn’t promote industry standards, just its own solutions. As a business, it should sell its products. What does it have to do with standards? Nothing.

A standard, by definition, applies to numerous offerings from different companies. Anyone can build to agreed-upon standards. OneStream suggests that the solution to a lack of industry standards is for the entire industry to unilaterally use its products. How inconvenient for competitors. If its mission is truly to help set industry standards, it should open its formats and offer standards that competing technology can be built to.

ZeroMedia offers an ad-serving and proprietary client-side creative format for ads. It claims to have solved all problems inherent to “first generation” locally installed ad-serving solutions (such as RealMedia and NetGravity) and “second generation” hosted ad-serving solutions (such as DoubleClick) that use their own server farms. ZeroMedia claims to have solved these problems by using CDNs to serve ads and a proprietary “patent-pending client-side intelligence.”

Many ad-serving solutions use CDNs (including Bluestreak, RealMedia, and others). Their “patent-pending client-side intelligence” requires individual users to choose ad preferences so ads can be targeted to them based on their defined criteria. Since the ad-serving solution seems to rely on this, it drags more issues into question.

Unless this industry starts communicating well, we’re not going to get past the misunderstandings in traditional media. If The Wall Street Journal doesn’t stop bashing online advertising, we’re in trouble. But we can’t complain about misrepresentation in the media if we can’t get our own story straight.

The stories above are on my mind, but I’m sure there are others. What are your suggestions for issues needing some housecleaning? We’ll try to air them here.